Friday, August 14, 2009

NYC, NY State and California = the municipal and state versions of GM...

With GM, the unions, with the acquiescence of management, loaded GM with such high labor costs and restrictive work rules that GM couldn't wring enough money from its customers to avoid going bankrupt.

And, to cite just one example, this is just what has happened with California. Its unions, with management (its elected officials) acquiescence, have so loaded the state budget with costs and restrictions so high that California can no longer wring enough money from its customers (taxpayers) to keep from going bankrupt.

GM had some attractive elements: the relatively few high-quality high-value cars that they produced every now and then. But there weren't enough people willing to buy these cars to offset all the billions that GM wasted elsewhere.

California also has some attractive elements: its climate, a diverse and decent workforce. But there aren't enough people who have to live in California and are willing to pay high taxes to offset all the billions that California is wasting on its public unions, education and welfare programs.

And just as GM's management kept putting off confronting the union, so too have California's elected officials put off confronting the public unions and other drags on the state finances. GM's management did so because they were more afraid of the short term consequences of a strike than the long term consequences of not addressing the issue; California's elected officials haven't confronted the public unions because they have been more afraid of having the union mobilize against them and costing them re-election than they've been afraid of the long term consequences of not getting state spending under control.

GM's luck ran out earlier than California's, as GM can't force people to buy its lower quality cars at a high price, while California has a greater ability, at least in the short term, to force taxpayers to pay more and more to cover the costs of the giveaways to public unions.

But as California's private economy continues to slide and more of California's wealthy decide to move out of state or otherwise shift income out of California's reach, California, like GM, is going to find it impossible to support its bloated workforce with less and less revenue.

And just as GM crashed, so too will California. It will have to cut jobs.. and much more than the lip service cuts it claims to have made. It will have to stop spending as much on welfare programs and other programs that don't benefit taxpayers.

It won't be pretty... but it is going to happen.